Japanese Yen trades with positive bias against US Dollar, lacks bullish conviction

• The Japanese Yen attracts some haven flows amid geopolitical tensions and intervention fears.
• Reduced bets for an imminent shift in the BoJ’s policy stance might cap further gains for the JPY.
• Hawkish Fed expectations underpin the USD and should contribute to limiting losses for USD/JPY.

The Japanese Yen (JPY) edges higher against its American counterpart during the Asian session on Monday, though remains well within the striking distance of a multi-month low touched last week. Investors remain concerned about geopolitical risks stemming from conflicts in the Middle East and the prolonged Russia-Ukraine war. This, along with speculation that Japanese authorities will intervene in the market to prop up the domestic currency, lends some support to the safe-haven JPY. That said, expectations that the Bank of Japan (BoJ) will delay its plans to end the ultra-loose policies, in the wake of a technical recession in Japan, is holding back traders from placing aggressive bullish bets around the JPY.

The US Dollar (USD), on the other hand, manages to hold its neck above a multi-week low touched last Thursday amid bets that the Federal Reserve (Fed) will begin cutting interest rates later than previously expected. In fact, investors have pushed back expectations for the first Fed rate cut to June. Moreover, the markets have converged back to the Fed's projected three 25 basis point cuts this year, which remains supportive of elevated US Treasury bond yields. This underpins the Greenback and further contributes to limiting the downside for the USD/JPY pair. Traders now look forward to this week's key US macro data – the Prelim Q4 GDP print and the Core PCE Price Index – for some meaningful impetus.

Daily Digest Market Movers: Japanese Yen bulls seem non-committed amid BoJ policy uncertainty

• Israel expressed its intentions to expand its operations to destroy Hamas amid the uncertainty over a ceasefire, while Russia is preparing a new offensive against Ukraine starting in late May or summer.
• This, along with the recent warnings from Japanese authorities that the government will intervene in the markets to stem further weakness in the domestic currency, offers support to the Japanese Yen.
• Data released earlier this month showed that Japan's economy entered a technical recession, and smashes hopes that the Bank of Japan will exit the ultra-easy policy regime, capping the JPY.
• The FOMC meeting minutes released last week, along with comments by Fed officials, indicated that the central bank is in no rush to cut interest rates as it aims to bring inflation to the 2% target.
• Expectations that the Fed will keep rates higher for longer remain supportive of elevated US Treasury bond yields and assist the US Dollar to hold steady above a three-week low touched last Thursday.
• This, along with the underlying bullish sentiment surrounding the global equity markets, undermines the safe-haven JPY and turns out to be a key factor acting as a tailwind for the USD/JPY pair.
• Investors now await this week's key US macro data, including the Core PCE Price Index, for fresh clues about the Fed's future policy decision before positioning for a firm near-term direction.

Technical Analysis: USD/JPY remains below multi-month peak, downside potential seems limited

From a technical perspective, any meaningful pullback is likely to find decent support near the 150.00 psychological mark. This is followed by last week's swing low, around the 149.70-149.65 region, which if broken could drag the USD/JPY pair further towards the 149.35-149.30 horizontal support en route to the 149.00 mark. Some follow-through selling below the 148.80-148.70 strong horizontal resistance breakpoint might shift the bias in favour of bearish traders and pave the way for deeper losses.

On the flip side, bulls need to wait for a sustained strength beyond the 150.85-150.90 area, or a multi-month top touched on February 13, before placing fresh bets. Given that oscillators on the daily chart are holding comfortably in the positive territory and are still away from being in the overbought zone, the USD/JPY pair might then climb to the 151.45 hurdle. The momentum could extend towards the 152.00 neighbourhood, or a multi-decade peak set in October 2022 and retested in November 2023.